Centre for Research on Globalisation
Centre de recherche sur la mondialisation

Laser-Guided Liberalization and Latin America

by Aziz Choudry

Scoop New Zealand 25 January 2004
www.globalresearch.ca    30 January 2004

The URL of this article is: http://globalresearch.ca/articles/AZI401A.html

Are Bilateral Deals the “Smart Bombs” of US Trade and Investment Policy? By Aziz Choudry Sunday, 25 January 2004 While the US military unleashed laser-guided weapons of mass destruction on the peoples of Iraq and Afghanistan, the Bush Administration’s aggressive international trade and investment agenda has developed some “smart bombs” of its own.

Patrick Cronin, senior vice president of Washington-based Center for Strategic and International Studies recently told the Daily Yomiuri ((Japan) January 1 2004):

“With the setback to WTO reform at Cancun (Mexico), the (Bush) administration is now focused like a laser beam on regional and especially bilateral trade accords."

Since 2001, US Trade Representative Robert Zoellick has insisted that the US would pursue trade and investment liberalization through global, regional and bilateral negotiations.

Zoellick was formerly on the advisory boards of Enron and Viventures (a venture capital firm founded by Vivendi, which has been aggressively buying up concessions to water and other privatized public services across the world in the wake of structural adjustment programs and other neoliberal reforms).

After the collapse of talks at Cancun last September, Zoellick divided the 146 WTO member governments at the Ministerial Meeting into “can-do” and “won’t do” camps, announcing that the US would push ahead with free trade and investment agreements with “can-do” countries on a subregional or bilateral basis.

Two months later, after US plans to rapidly advance a broad-ranging 34-country Free Trade Area of the Americas met with stiff resistance at the FTAA Ministerial Meeting in Miami, Zoellick announced upcoming bilateral negotiations with a number of Latin American countries. He told journalists: “there’s a lot to be achieved in bilateral or smaller regional agreements because we can customize the work.” He referenced the new deals to those made with both Mexico and Canada over a decade earlier. These had laid the groundwork for the North American Free Trade Agreement (NAFTA), which turned 10 on January 1st 2004, the same day that new free trade agreements (FTAs) with Chile and Singapore took effect.

NAFTA, dubbed a “death sentence” for Mexico’s campesinos and Indigenous Peoples, has led to strong and sustained resistance from a broad spectrum of Mexico’s population. It was one of the catalysts for the Zapatista uprising. Since it came into effect, cheap, subsidized US corn has flooded the market, sold at prices below the cost of production, with which campesinos cannot compete. This has led to massive displacement, poverty, and hunger. Meanwhile, under its investment chapter, corporations have sued all three NAFTA governments for policies which they say interfere with their actual or potential investments, and rights to make profit.

Bilateral free trade and investment agreements tend to sneak past the radar of many movements and organizations concerned about neoliberal globalization. But they are every bit as dangerous as their higher profile cousins.

The US is using bilateral and subregional free trade and investment agreements to set tougher standards for future trade and investment negotiations. This will make it harder for governments to oppose US demands at the WTO. Once countries are already committed to tougher trade and investment rules through a bilateral agreement, it will be more difficult to mount the kind of opposition to US proposals which Brazil helped to lead in Cancun.

In the 1823 Monroe Doctrine the US announced that the Western Hemisphere was its sphere of influence. Any attempt on the part of European powers “to extend their system to any portion of this hemisphere” was deemed “dangerous to our peace and safety”. This was reinforced in 1904 with the Roosevelt Corollary which held that the US had the right as a “civilized nation” to intervene in its southern neighbours’ affairs as “an international police power”. Bush’s trade agenda, and US military aid to Colombia and Mexico to support US geopolitical and corporate interests continue this imperialist legacy.

Between Cancun and Miami, Zoellick went on an emergency mission to Central America to pressure governments to speed up negotiations on the Central American Free Trade Agreement (CAFTA) and to reverse the positions on agriculture that they took at Cancun. This included cajoling the CAFTA member countries of El Salvador, Guatemala, Costa Rica, as well as Peru and Colombia, which had sided with Brazil in the G21 at Cancun. Zoellick had pursued CAFTA negotiations with five smaller countries when it was clear that FTAA talks would grind slowly because of mounting opposition from Brazil and Venezuela. When Costa Rica pulled out of CAFTA in December, refusing to buckle to US demands that it offer its insurance and telecommunications sectors for privatization, Zoellick pushed on and concluded CAFTA with the other four governments (Honduras, Nicaragua, El Salvador and Guatemala).

US-Dominican Republic FTA negotiations in 2004 aim to “dock” the Dominican Republic into CAFTA. During the FTAA Ministerial, US Congress was notified of intent to initiate FTA negotiations with Panama. FTA negotiations with Peru and Colombia are proposed to start in the second quarter of 2004. Preliminary discussions with Ecuador and Bolivia are underway. The day after the FTAA Ministerial in Miami ended, Zoellick and Didier Opertti, Uruguay’s Foreign Affairs Minister, announced an early 2004 launch of formal talks on an FTA.

In expanding its economic and political domination of the Americas, this US strategy seeks to divide and rule – to erode solidarity and hamper strategic alliances among Latin and Central American governments. Washington wants to shape initiatives such as Mercosur (Southern Cone Common Market, a customs union comprising Argentina, Brazil, Uruguay and Paraguay, with Chile, Bolivia and Peru as associate members) and the Community of Andean Nations (CAN - Bolivia, Ecuador, Columbia, Peru and Venezuela) for US interests. It seeks to isolate Venezuela and Brazil which are resisting US plans for the FTAA. Laser-guided liberalization – bilateral deals – allows the US to single out selected countries from Mercosur and CAN, and restrict the potential for alliances like the G21 to stand up to US bullying and double standards at the WTO. Many US business lobbies want bilateral agreements with Latin American countries like Chile, because they feel that they are missing out on export and investment opportunities in the region to the EU and Canada, which have secured duty-free access for many goods through bilateral trade agreements.

An EU-Chile free trade agreement came into force in 2003. The EU and the CAN have held initial negotiations about a “Political Dialogue and Cooperation Agreement” which would include an FTA.

Venezuela’s Chavez and Brazil’s Lula both support closer economic ties between the CAN and Mercosur, seeing a merger of the blocs as a potential hemispheric counterweight to the US. Since 2001, there have been talks between the US and Mercosur – the so-called “Four-Plus-One” – but these have focussed mainly on market access and have achieved relatively little. In 2003, USAID allocated double the amount of funding for trade capacity-building in the Latin American and Caribbean region from the previous year, especially in support of CAFTA.

Meanwhile, some Asian countries are pursuing bilateral agreements with Latin America. A Korea-Chile FTA has met with such serious opposition from Korean farmers and some legislators that it has yet to be ratified by Korea’s National Assembly, a Taiwan-Panama FTA was signed in August 2003, while a Taiwan-Guatemala FTA is reportedly in the pipeline.

In Miami, Zoellick claimed that: “frankly from the United States’ point of view, for part of our economic as well as our larger interests we want to try to help a number of these countries”. Claims that this US agenda will “help” its southern neighbours ring as true as official statements which hold that the US-led war, invasion and occupation has liberated Iraq. Differences with many Latin American governments over Cuba, immigration, the war on Iraq, recently-introduced fingerprinting and photographing most visitors to the USA on entry, and a perceived electoral swing to the left by several countries in the region have added to tensions between the US and other countries in the region. A recent Zogby International poll found that 87 percent of Latin American opinion-makers disapproved of Bush's policy in the region. A Latinobarometro poll found that nearly a third of Latin Americans had a negative image of the US - a twofold increase since 2000. These tensions remained at January’s Summit of the Americas in Monterrey, Mexico.

The US-Chile FTA is a groundbreaking agreement, imposing commitments which go well beyond WTO and NAFTA provisions. It aims to add momentum to the flagging FTAA negotiations, and help US exporters gain greater access to other markets in the region.

Intellectual property provisions go even further than the WTO’s TRIPS (Trade-Related aspects of Intellectual Property rights) agreement, severely limiting the grounds for allowing use of compulsory licensing of medicines, and effectively extending the 20-year term of drug company patent monopolies by an additional five years, threatening access to affordable medicines, not least HIV/AIDS drugs. The FTA also sets a precedent by applying the principle of “first-in-time, first-in-right” to trademarks and geographical indications (placenames) applied to products. This means that the first to file for a trademark is granted the first right to use that name, phrase or geographical place-name. This will be used in forums like the WTO to oppose the EU approach, which gives priority to geographical indications (eg parmesan, feta, roquefort, pilsner, and Burgundy) over existing trademarks. (TRIPS defines geographical indicators as identifications of the country or region where the quality, reputation or other characteristic of a product is essentially attributable to the geographical region.)

The US-Chile FTA imposes alarming new limits on the use of capital controls. In a joint NGO declaration, the Chilean Alliance for Just and Responsible Trade (ACJR) and the Alliance for Responsible Trade (ART) state:

“Chile’s “encaje”, under which foreign investors deposited a portion of their investments in the Central Bank, was a key factor in protecting the Chilean economy from the fallout of the 1995 “peso” crisis in Mexico. Nevertheless, at the insistence of the Bush Administration, this mechanism has been eliminated. The new bilateral agreement would prevent the Chilean government from implementing such controls except once an emergency has already begun. Even under those limited circumstances, foreign investors would have the right to sue for compensation a year after the measure’s implementation, adding additional pressure on policymakers to delay any controls on capital flight until it is much too late.”

Even free traders have slammed this aspect of the FTA. In a March 2003 Financial Times article, Jagdish Bhagwati and Daniel Tarullo wrote: “The prohibition on capital controls has the makings of a US foreign policy debacle. Imagine that a government imposes short-term capital controls in order to manage financial problems. Compensation will ensue, but only for American investors. The citizens of the developing country will then see a rich US corporation or individual being indemnified while everyone else in the country suffers from the crisis. One would be hard-pressed to think of a better prescription for anti-American outrage.”

The US successfully pressed Chile to phase out its agricultural price band system, something which Chile had been able to maintain in bilateral deals with the EU and Canada. This is designed to stabilize import costs of agricultural staples through adjustment to tariffs on such products. So, based on the international price of commodities - wheat, wheat flour, vegetable oil, and sugar – tariffs are either increased to defend a floor price or reduced to defend the ceiling price. Argentina, backed by the US had taken a complaint to the WTO about this system and a WTO ruling had demanded that Chile modify the system to make it consistent with its WTO obligations. The US has been gunning for Chile’s price band system for some time, claiming it to be protectionist. But it has no problem allocating huge subsidies to (mainly corporate) domestic agriculture. The phaseout pits small Chilean farmers who generate over 60% of the country’s agricultural output against a heavily subsidized US agribusiness sector. As Chilean farmer Nicolas Garcia told the Washington Times (17/06/03), “It's a case of the biggest and strongest eating the smallest. We just cannot compete with U.S. agricultural subsidies.” Now, with the Chile bilateral in the bag, the Bush Administration is using this concession as leverage to pressure other countries in the region which maintain a similar system – such as Colombia and Ecuador – to remove these measures.

The US-Chile FTA also locks in more radical commitments on TBT (technical barriers to trade, which covers food labelling standards) and government procurement. It contains “NAFTA-plus” broad definitions of investment which throw the door wide open for disgruntled investors to take a case to a dispute tribunal.

Argentina already knows what that means. Azurix, a former subsidiary of Enron won a bid to run the privatized water and sewage system for 2.5 million people in parts of Buenos Aires province, in May 1999. Bahia Blanca residents complained that their water smelt bad and looked brown, while regulators considered sanctions against Azurix for very low water pressure. After the water supply was found to be contaminated, health authorities warned people not to drink or bathe in the water. The local regulating agency forced the company to deliver free bottled water to all those affected, not to charge for a period when the water was of poor quality, and also fined Azurix for breach of contract. In October 2001 Azurix said that it would withdraw from the contract, complaining that the province would not let it charge rates according to the tariff specified in the contract and would not deliver infrastructure. The province rejected the termination notice. Then, under a 1991 US-Argentina bilateral investment treaty, Azurix sued Argentina’s bankrupt government for US $550 million. Azurix says that the authorities’ actions amount to interference with its investment.

Argentina is the target of several other disputes brought by disgruntled investors under bilateral agreements. In July 2003, French utility corporation Suez launched three investor-state cases against Argentina for alleged breaches of a France-Argentina BIT arising from three separate water concessions in Cordoba, Buenos Aires, and Santa Fe. Spanish company Telefonica has brought a claim against Argentina. CMS Gas Transmission Co, is also suing Argentina under the US-Argentina BIT. With the explosion of bilateral and subregional trade and investment agreements containing similar clauses, we can expect more of these outrageous cases.

With elections looming, perhaps the Bush Administration’s zeal to pursue free trade and investment agreements with “can do” countries will be tempered by concern not to offend powerful domestic industry lobbies which have been less than keen on deals which might impact their sectors. Even with fast-track trade promotion authority, it may not be so easy to get new deals approved by Congress this year. Nonetheless, these – and other low profile trade and investment deals are going to become increasingly significant weapons in the armoury of the pushers of neoliberal capitalism.

Aziz Choudry is associated with GATT Watchdog, New Zealand.  He is a frequent contributor to Global Research.

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